Google parent Alphabet reported earnings Tuesday afternoon. Despite sluggish YouTube performance, the company saw Cloud revenue and profits reach record highs and its Search thrived — mostly thanks to its aggressive AI approach.
J.P.Morgan’s Doug Anmuth said in a research note to investors Wednesday morning that Google’s profit margin of over 32% is its largest since 2011. Anmuth said that “Google’s durable re-engineering of the cost structure is showing tangible results” and that it’s “generating efficiencies driven by GenAI.”
The company reported revenues of nearly $85 billion, beating expectations on Wall Street. Its profits increased almost 30% to $23.6 billion. And sales from its Cloud division topped $10 billion for the first time, while Cloud profits hit a record of over $1 billion. Google CEO Sundar Pichai credited its second quarter performance to its success implementing its Gemini AI into the Cloud and rolling out a new Google Search tool called AI Overviews.
While investors have worried that AI would render Google Search obsolete, the opposite has been true so far. And Wedbush analyst Dan Ives said in a note to investors Tuesday, “We think the progress Google has made with AI search results over the last two quarters should help to alleviate investor concerns regarding the structural risks of generative AI to Search.”
Ives and Anmuth see Google’s stock price rising to $205 and $208, respectively, over the next year.
One thing that puts Google at risk for future instability, analysts noted, is the possibility that the Department of Justice will bar Google from making future agreements with Apple to make Google the default Search engine on its devices. The agreement came under scrutiny during the landmark antitrust case against Google that wrapped up this year, in which the DOJ accused the tech mogul of monopolizing the search market. The DOJ said the agreement is valid until at least 2026, and a final ruling is expected this summer.